VW's Chief, Under Fire, Fights Back

By MARK LANDLER

Published: March 8, 2006

With his job seemingly hanging by a thread, Volkswagen's chief executive, Bernd Pischetsrieder, turned an annual news conference into a methodical defense of his tenure Tuesday, announcing plans to revive the lumbering company with zippy new cars and lower costs.

''Why should I resign?'' Mr. Pischetsrieder said, when asked about a public rebuke delivered last week by the powerful chairman of Volkswagen's supervisory board, Ferdinand K. Pi?.

Mr. Pi? had claimed that employee representatives on Volkswagen's board might vote unanimously against extending Mr. Pischetsrieder's contract. But Mr. Pischetsrieder, 58, said he planned to remain in his post.

''I would like to lead our company to success, together with my colleagues,'' he said at the end of a presentation with enough initiatives to keep him busy for several years.

Mr. Pischetsrieder conceded, however, that he could not continue to run Volkswagen if he did not have the support of its unionized work force, which holds 10 of the 20 seats on the board. ''One can lead a company only with employees, not against employees,'' he said.

Mr. Pischetsrieder's five-year contract expires in 2007; the board will vote this spring on whether to extend it. The company's employee representatives, though stung by cutbacks, have so far refused to be drawn into the issue of Mr. Pischetsrieder's future.

Analysts here are watching this boardroom drama closely because, they say, much more than the fate of a single man hangs on the outcome. ''It determines the path of the company,'' said Arndt Ellinghorst, an auto analyst at Dresdner Kleinwort Wasserstein in Frankfurt.

The intrigue at Europe's largest carmaker spilled into the open last week when Mr. Pi? said in an interview with The Wall Street Journal that Mr. Pischetsrieder's future was an ''open issue'' because of opposition to him by the company's unions and worker representatives.

Volkswagen's employees are rattled because Mr. Pischetsrieder has embarked on a cost-cutting plan that could result in the elimination of up to 20,000 jobs in its German factories within three years.

On Tuesday, Mr. Pischetsrieder seemed to bid for their support by softening some of the plan's rough edges. Previously, Volkswagen said it might sell or close several factories that make components. Now, however, Mr. Pischetsrieder says the company will not sell plants that make engines and transmissions -- an exception sure to please workers -- because those were core parts of its business.

Of the 20,000 potential job cuts, Volkswagen hopes to obtain more than half by lowering its retirement age to 58. Others will be removed from the payroll through the sale of subsidiaries. And it has all but ruled out layoffs. ''The aim should not be to shed surplus workers,'' Mr. Pischetsrieder said.

For all the talk of labor unrest, analysts and Volkswagen insiders said the roots of the problem were in fact more personal.

Mr. Pi?, himself a former chief executive of Volkswagen, has watched with chagrin as Mr. Pischetsrieder has begun to dismantle his legacy. Volkswagen recently stopped selling the Phaeton, a $70,000-plus sedan that is Mr. Pi?'s fondest creation, in the United States because of poor sales.

While Mr. Pi? couched his comments about Mr. Pischetsrieder as an analysis of the board's leanings rather than his own, analysts said Mr. Pi? was maneuvering to replace the chief executive, whom he recruited to Volkswagen in 2002, with someone more amenable to himself.

''The future of VW is once again linked to the decisions of Pi?,'' said Ferdinand Dudenh?r, the director of the Center for Automotive Research in Gelsenkirchen. ''He is defining the rules of the game.''

Mr. Pi?, 68, has multiple sources of influence. He is a grandson of Ferdinand Porsche, the designer of the Beetle, and an heir to the Porsche family fortune. Porsche, the sports car manufacturer controlled by his family, recently acquired 21 percent of Volkswagen's shares, becoming its largest shareholder and winning two seats on the board, in addition to Mr. Pi?'s own.

During his nine years as chief executive -- a period during which Volkswagen rebounded from a financial crisis and flourished -- Mr. Pi? commanded the loyalty of the company's workers.

Last fall, he engineered the appointment of a one-time union official, Horst Neumann, as Volkswagen's head of personnel, over the objections of Mr. Pischetsrieder, who argued it would send the wrong signal when Volkswagen was trying to overhaul its labor practices.

Mr. Pischetsrieder avoided addressing Mr. Pi? directly at the news conference, except to note that Mr. Pi? is on the record as supporting him. Porsche and Volkswagen's other major shareholder, the state of Lower Saxony, have both pledged to extend his contract.

Still, Mr. Pischetsrieder did not dispute that Mr. Pi? left him a mixed legacy, given Volkswagen's ill-fated foray into luxury cars, as well as its costly purchase of names like Lamborghini and Bentley.

''Every successor builds on what the predecessor did -- also on the negative,'' he said. ''We're taking action now so that our successors in 10 years will not say, 'They should have solved the problems then.' ''

If Mr. Pi? is determined to oust Mr. Pischetsrieder, he will probably line up one of three candidates as a replacement: Wendelin Wiedeking, the chairman of Porsche; Martin Winterkorn, the chairman of Volkswagen's thriving Audi subsidiary; or Wolfgang Bernhard, a former Chrysler executive recruited last year to turn around Volkswagen's troubled flagship brand.

Mr. Bernhard is the least likely, analysts said, because he is quite young, 45, and because his hard-charging style could prove no more acceptable to the workers than Mr. Pischetsrieder's approach.

Mr. Pischetsrieder insisted his managers were unified behind him. ''We will not allow any wedges to be driven between us,'' he said.

The outsider, Mr. Wiedeking, has professed little interest in running Volkswagen. But Mr. Dudenh?r said Mr. Pi?, ''just needs to pick up the phone, call Wiedeking, and say to him, 'Do me a favor.' ''